Raising a child isn’t cheap. According to the United States Department of Agriculture, the price tag for a child born in 2015 is about $233,610 from birth through age 17 for a middle-income family. For parents, tax season is a chance to recoup some of those costs.
There are several parental tax deductions and credits available to those with dependent children. Some are only available to parents who pay day care costs or higher education expenses. The child and dependent credit, however, doesn’t require parents to cover any particular costs.
Here’s how you claim this valuable credit and how much it’s worth.
Who Can Claim the Child Tax Credit
The child tax credit (CTC) is worth up to $2,000 per child who meets the following requirements:
- Is a son, daughter, stepchild, adopted child, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of these — for example, your grandchild, niece, or nephew
- Is under the age of 17 at the end of the tax year
- Is a U.S. citizen with a Social Security number (SSN)
- Did not provide more than half their own support during the tax year
- Lived with you for more than half the year
- Is claimed as a dependent on your federal tax return
- Does not file a joint return with a spouse or files it only to request a refund of withheld taxes
In addition to the requirements above, you must have at least $2,500 of earned income, such as wages or income from self-employment, to qualify for the credit.
The CTC can only be claimed once per child per year. For example, in the case of divorced parents who both qualify to claim one child as a dependent, only one can claim the child and take advantage of the CTC. If both parents try to claim the child, the IRS will apply tiebreaker rules to determine who gets to claim the dependent. The IRS explains those tiebreaker rules in detail in Publication 501.
Pro tip: By using tax preparation software from a company like H&R Block, you’ll have confidence you’re getting every available tax deduction and minimizing your tax liability. Plus, if you have any questions while preparing your tax return there are tax advisors available to help.
Limitations on the Child Tax Credit
The purpose of the CTC is to help parents who need it, so the credit is phased out for taxpayers with higher incomes.
If you’re a single taxpayer with an adjusted gross income (AGI) over $200,000 or a married-filing-jointly taxpayer with an AGI over $400,000, the IRS reduces your credit by 5% of your AGI. There is no credit if your AGI is over $240,000 for single filers or $440,000 for married couples.
Refundable Portion of the Child Tax Credit
As the name suggests, the CTC is a tax credit, meaning it is a dollar-for-dollar reduction in the amount of tax you owe. If your available child tax credit exceeds your taxes owed, you can receive up to $1,400 of the balance as a tax refund. This refundable portion is also known as the additional child tax credit (ACTC).
If you believe you qualified for the CTC or the ACTC in a previous tax year and forgot to claim it, you can amend your original tax return for up to three years from the date you filed the return and get a refund of the tax you overpaid.
Credit for Other Dependents
If you have a dependent who doesn’t meet the requirements to claim the CTC, you may still be able to claim the credit for other dependents. For instance, you can claim this credit for:
- A child who does not have an SSN but does have a Taxpayer Identification Number
- A child who is age 17 or 18 or age 19 to 24 and in school
- Other older dependents, such as an elderly parent
The maximum credit for other dependents is $500, and it has the same phase-out threshold as the CTC.
You cannot claim both the child tax credit and the credit for other dependents for the same dependent. However, you can claim the child and dependent care credit in addition to the CTC or the credit for other dependents if you paid eligible day care expenses for your dependent.
Claiming the Child Tax Credit on Your Tax Return
You claim the CTC or the credit for other dependents on Line 19 of your 2020 Form 1040. You can calculate your allowable credit using the worksheet included in IRS Publication 972. If you are eligible to claim the refundable ACTC, you must also complete Schedule 8812 and attach it to your Form 1040.
Some states also offer a complimentary child tax credit that can reduce your state income tax. The credit is refundable in some states and nonrefundable in others. To learn more about the available credit in your state, check out the state-by-state guide maintained by the nonprofit organization Tax Credits for Workers and Their Families.
Future of the Child Tax Credit
The Tax Cuts and Jobs Act of 2017 made several changes to the CTC. However, those changes expire after 2025 unless Congress extends them or makes them permanent. After that, the CTC reverts to its previous form:
- The credit will start to phase out once your AGI exceeds $75,000 for single filers or $110,000 for married couples
- The maximum credit will be $1,000
- The credit for other dependents will disappear
- You will need to have at least $3,000 of earned income to qualify for the credit
However, some lawmakers are discussing expanding the CTC. The Heroes Act, passed by the House in 2020, included a provision to make all $2,000 of the CTC refundable, increase the value of the credit from $2,000 to $3,000 per qualifying child (and $3,600 per child under age 6), and raise the age of eligible children to include 17-year-olds. So far, expanding the CTC hasn’t made it onto any legislation passed by the Senate, so the credit remains as-is for now.
You can read more about the child tax credit and the credit for other dependents, as well as calculate your available credit, in IRS Publication 972.
Raising kids is a pricey endeavor, so pay close attention to any tax benefits that can help you offset those costs by reducing your tax liability. The nonpartisan Tax Policy Center estimates the child tax credit delivers about $130 billion in benefits to families with children. So familiarize yourself with the rules for claiming the credit and take advantage if you’re able.
And don’t forget that if you have questions about claiming this tax credit on your tax return, don’t hesitate to use a tax preparation company like H&R Block. They have live CPAs available to answer your questions.